Countervailing power and health care finance: an insider’s view

A friend in the healthcare industry loved Harold Pollack’s discussion of the political economy of health care finance. The problem is to create a locus of bargaining power that can carry out effective cost control in the face of extremely strong provider interests without enabling cost-control-by-letting-sick-people-die.

He writes:

Countervailing power is crucial and doesn’t get enough attention. Today it seems to me we have the following distribution of power among key players:

* Consumers (currently mostly left out and not structured properly from an incentive perspective);·

* Commercial payers/ employers/ unions (very modest because their role, too, is structured so awkwardly given their fundamental missions);

* Health plans/insurers (currently modest at best in terms of net positive meaningful impact, but I believe poised for another round of major contribution);

*  Suppliers (enormous); and

*Government (even now fairly enormous but generally poorly wielded) – will determine our success or failure over time.

I think many of us share certain conservative notions conceptually re: the desirability of finding better ways and incentives to give consumers more information and power, an issue even more critical for vulnerable individuals and populations. Yet moving that theory in to practice is very difficult. In addition, the fact that consumers in the US continue to have an unfortunate worshipper:deity relationship with providers makes it an even more difficult nut to crack. Most people actually believe, for example, that only they and their doctor know what’s best for them, which is abject b******* in many if not most cases. They also never think to wonder whether a functional market for a public-like good would pay the ophthalmologist $900k.

Which does leave us with some combination of government and other players needing to become much stronger in the bargaining scheme. The advantage of the “all Medicare fee-for-service all the time” approach would be the concentration of that power with government, and the removal of employers from their fundamentally ill-informed and unproductive roles as payers. The disadvantages would be that a) we would still have a volume-based system, b) we would now officially remove consumers from having any real power (voting with your feet doesn’t count if you don’t have information and there is a supply shortage, which there is of practitioners), and c) we still have a political structure in which rent-seekers will be richly rewarded to the detriment of others. Thus, this approach would likely fail as well. In addition, it would not take advantage of the major intellectual, clinical, and system assets that some of the bad ole health plans do have, assets which, properly aligned with other system incentives, can make real differences in both quality and cost.

So what’s the answer? Recognizing that a little knowledge is a dangerous thing, the solutions in, e.g,. Switzerland, appear to have much to recommend them: tightly regulated, mandatory, health plan schemes that balance power among consumers, suppliers, plans, and government.

The question then remains, of course, how one gets there in a world where supplier power is currently so strong.